Identity theft: staying one step ahead of the "bad" guys.

• Author: Porter, Jeffrey A., II

It seems that rarely a week goes by without news of another data breach. In February, Anthem, then the nation's second-largest health insurance provider, announced that hackers broke into databases containing personal information on 80 million customers and employees; in July, the federal Office of Personnel Management reported that 21.5 million individuals' sensitive information, including Social Security numbers, was stolen; and, possibly most disturbing, this spring the IRS Get Transcript Application was hacked, and approximately 334,000 taxpayers' data were stolen. While it is unknown how many of these data breaches result in actual identity thefts, it is safe to say that the number of incidents is increasing.

According to a U.S. Government Accountability Office report (GAO-14-633), in 2013, the IRS paid out an estimated $5.2 billion in fraudulent refunds, while preventing $24.2 billion in payouts of fraudulent refunds; in a 2015 survey by The Tax Adviser and the Journal of Accountancy, 63% of CPAs reported at least one of their clients was a victim of tax identity theft during the 2015 filing season.

For the first time, the author's practice had two clients whose returns were rejected because returns had previously been filed using their Social Security numbers. While this is not a large number, it does bring additional stress into an already stressful time and requires the preparer to assist clients in managing and resolving the issue. Clients typically do not understand how this "could have happened" to them and why it is taking so long to resolve.

It is important to understand that, while no silver bullet can stop all identity theft tax refund fraud, a number of steps can be taken to minimize the opportunities for identity thieves to be successful. For example, this past filing season, the IRS began limiting the number of refunds that can be deposited into the same bank account. While this is a small step, it does make it harder for criminals to receive multiple refunds. However, today's identity thieves are formidable foes for the IRS. They are constantly adapting and changing their tactics to stay one step ahead of the safeguards and filters put into place by the IRS.

The AICPA has been supportive of and advocated for a number of proposals to help the IRS fight identity theft tax refund fraud, including:

* Using truncated Social Security numbers on Form W-2, Wage and Tax Statement, and all types of tax forms and returns provided...